A mild rebound seemed to be taking shape early Wednesday after positive trade comments from the U.S. Treasury secretary, but investors await more proof of progress.
Figure 1: NO RETREAT OR SURRENDER: The Cboe Volatility Index (candlestick) continues to be elevated, though it’s down from the May highs. Even with the S&P 500 Index (purple line) rising to new record highs this month, the VIX hasn’t gone back toward its April lows. This could reflect continued investor caution and concern around the trade situation. Data Source: Cboe Global Markets, S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Next Jobs Report Could Be Critical: Just over the horizon sits the next jobs report, due a week from Friday. That’s the day after a market holiday, and the low-volume, holiday-type trading that frequently happens around Independence Day could play into how the market reacts to the numbers. Arguably, this could be one of the most important jobs reports in a while, and it’s one of those that could send the market either spiraling or rocketing. Any reaction could be more dramatic than usual with so many investors away from their desks for the long weekend, so it might be prudent to take extra care if you’re considering making any trades around that time.
What potentially makes the June jobs number so influential is that it comes after a weak report in May showing just 75,000 jobs created. The Fed came out soon after that and said it sees signs of slowing in the economy, so another weak jobs report for June might reinforce worries that a slowdown is underway. We’ll talk more in the next few days about the report and its possible ramifications, but it’s just one of those things to consider keeping in mind, especially if you’re going to be around for the holidays and planning to make any trades.
Double Trouble: Investors hoping for signs of life in the U.S. economy got slammed with a double blow of bad news early Tuesday when the Conference Board reported weaker than expected consumer confidence for June and new home sales for May came in well below Wall Street’s expectations. It looks like trade worries are starting to weigh on consumer confidence, while new home sales fell nearly 8% from a year ago despite lower mortgage rates over the last few months.
Next up on the data calendar is the government’s final estimate for Q1 gross domestic product (GDP), due early Thursday. The consensus estimate is no change from the 3.1% reported last time out, according to Briefing.com. Looking ahead to Q2, the Atlanta Fed’s GDP Now forecast model still stands at 2%, but is due for an update today. Up or down? Let’s wait and see.
Housing Headwind: Those weak new home sales coincided with a couple of home-builders’ earnings reports this week, including KBH today. In its earnings call Tuesday, Lennar (LEN), the second-biggest home-building company, said the impact of tariffs on Chinese goods represents about a $500 per home headwind, on average. It’s one of the many ways tariffs work themselves into the economy. When people think of tariffs, they might have big-ticket items like cell phones and farm products in mind, but U.S. trade with China gets down to many little products, too. A lot of those smaller things end up in new homes. Last year, the National Association of Home Builders reported that of the 6,000 items on the list of goods imported from China that are now subject to tariffs, 463 are “ubiquitous” in home construction and remodeling, the Washington Post said. This includes products ranging from iron nails to flooring to granite countertops, tiles, sinks, roofing, cement, paints, cabinets, wooden and steel doors, windows, lighting, appliances, and much more.
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Economic calendar for week of June 24. Source: Briefing.com
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